ENRON'S COLLAPSE: THE DERIVATIVES; Market That Deals in Risks Faces a Novel One

When members of the International Swaps and Derivatives Association gathered in Washington last April, the man they all wanted to hear was Jeffrey K. Skilling, then the president and chief executive of Enron.

Enron had helped create the global market for energy-based derivatives -- customized risk-swapping contracts that enable companies to hedge their exposure to changing energy prices and supply fluctuations. Even among traders more familiar with interest-rate swaps or currency hedges than energy contracts, Mr. Skilling's presentation did not disappoint.

''He dazzled everybody -- it seemed he could figure out a way to trade the minutes on this phone call,'' one industry executive said.

But yesterday, many of those same executives were crossing their fingers and hoping that Enron's crisis would not spread into the energy swaps market that the company had done so much to enliven.

As the day ended with fairly stable trading, there were a few cautious sighs of relief. But nobody is quite sure just how much money the energy-related derivatives markets will have at risk if Enron fails.

According to Swaps Monitor Publications, which collects data for the derivatives markets, Enron ranks among the top energy-swaps traders in the world, on a par with financial giants like Bank of America and Barclay's.

At the end of September, Enron's gross derivatives trading liabilities -- the amount of money it would owe to other market players if it filed for bankruptcy -- stood at $18.7 billion, up slightly from June levels but about $1.3 billion less than at the end of last year.

But that level may overstate the risk to other companies. ''These numbers do not take into account the unknown amount of collateral that Enron may have posted,'' said Paul Spraos, Swaps Monitor's president. Such collateral should, in principle, diminish Enron's actual liabilities to the derivatives market, he said.

In a typical energy swap, a company will enter into a contract to lock in a fixed price of a certain commodity, like natural gas or electricity. The other company, the counterparty, in the deal assumes the risk of future price changes and quotes a fixed price that includes its own profit. The efficient trading and pricing of these contracts requires a marketplace with large, active traders.

As of last night, there were no signs of a major panic that would drive major participants to the sidelines, industry executives said.

''It's not likely that Enron's problems will cause serious difficulty for any other sizable counterparty,'' said Mark C. Brickell, a veteran swaps-market executive and the chief executive of Blackbird, a technology firm that operates an electronic swaps-trading system. ''While there may be some smaller firm that didn't manage its exposure as well as it might, that won't cause any major problems for the system as a whole.''

Michael Williams, managing director of TradeSpark, a rival to Enron's online energy-trading system, agreed that there was ''no sign of shrinkage'' in the marketplace yesterday. ''So far, we've seen no complaints about a lack of liquidity,'' he added.

Most participants in the energy derivatives market rely on a standard contract that was developed by the International Swaps and Derivatives Association and is recognized in the courts. The contract clearly specifies the rights each party has in the event of a default, said Robert Pickel, the association's chief executive. As of late yesterday, he added, the markets appeared ''to be fairly resilient in the face of extremely negative developments regarding such a major player.''

But at least one lawyer who specializes in swaps contracts indicated that it might be too soon to assess the full impact. That lawyer, Ann O'Hara, in Lincoln, Neb., said that her clients' anxiety about Enron had escalated sharply only in the last few days. ''No one believed it would really happen,'' she said. ''It is not a surprise, but it is a shock.''